MEETINGS FOR DEMERGERS

The following table has been divided into parts –one that is applicable to the Demerged Companies while the other that is applicable to the Resulting Companies. In case of Demerger involving more than two Companies; the meetings mentioned for the Demerged Company column shall be applicable to all the Demerged Companies party to the Scheme and whereas the meetings mentioned for the Resulting Company column shall be applicable to all the Resulting Companies party to the Scheme.

MEETINGS FOR TAKEOVER

In case of Takeover of a company, there are 3 parties involved:

1. Target Company - Company whose Shares/Voting Rights/Control is being acquired
2. Acquirer – Who acquires Shares/Voting Rights/Control over Target Company
3. Seller – Who sells his Shares/Voting Rights/Control in the Target Company

In case of Acquirer (when Acquirer is Company)

1^ST Board Meeting

• To pass resolution for acquisition of Shares/Voting Rights/Control of Target Company and Execution of Share Purchase Agreement (subject to approval of Shareholders if required in case of crossing inter corporate investment limits prescribed under section 186 of the Companies Act,2013)
• To authorize Managing Director/Executive Directors to execute Share Purchase Agreement and other related documents with the Seller.
• To hold EOGM to obtain share holders’ approval for inter corporate investment if the investment in Target Company is crossing the prescribed limits of inter corporate investment under section 186 of the Companies Act, 2013
• To adopt Valuation Report for payment of consideration
• To appoint Lawyers, consultants if any (In case of Listed company, appoint Merchant Banker)
• To Open Escrow Account to deposit amount of consideration payable under Open Offer (In case of Listed Company)

Extra Ordinary General Meeting  (if required)

1. To make Inter Corporate Investments in Target Company by passing Resolution as per Section 186 of the Companies Act, 2013

2^nd Board Meeting

1. To Execute Share Purchase Agreement subsequent to approval of Shareholders (if required)

In case of Target Company

1^ST Board Meeting

1. To note Execution of Share Purchase Agreement
2. To constitute Committee of Independent Director to provide recommendations on Open Offer (in case of Listed Company)

2^nd Board Meeting

1. To pass resolution for alteration of Memorandum and Articles of Association of the Company to give effect to the provisions of the Share Purchase Agreement (if required)
2. To register Transfer of Shares from Seller to Acquirer.
3. To appoint new Directors nominated by Acquirer in place those nominated by Seller

Extra Ordinary General Meeting (if required)

1. To approve alteration of Memorandum and Articles of Association of the Company to give effect to the provisions of the Share Purchase Agreement

Meeting of the Committee of Independent Directors (in case of Listed Company)

1. To provide recommendations on Open Offer on receipt of Detailed Public Statement from Acquirer.

In case of Seller (when Seller is Company)

1^ST Board Meeting

1. To pass resolution for Sale of Shares/Voting Rights/Control of Target Company
2. To authorize Managing Director /Executive Directors to execute Share Purchase Agreement and other related documents with the Purchaser.
3. To appoint Lawyers, consultants if any
4. To adopt Valuation Report if any for deal valuation

REDUCTION OF SHARE CAPITAL

GUIDING SECTION: 66

Board Procedure for Reduction of Capital:

A company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may—

1. extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or
2. either with or without extinguishing or reducing liability on any of its shares
3. cancel any paid-up share capital which is lost or is unrepresented by available assets; or
4. pay off any paid-up share capital which is in excess of the wants of the company,

alter its memorandum by reducing the amount of its share capital and of its shares accordingly.

BUY BACK OF SHARES

PROCEDURE FOR BUY BACK OF SHARES:

UNLISTED PUBLIC COMPANY / PRIVATE COMPANY

1. Convene board Meeting to discuss following business:
2. Discuss proposal for buyback
3. Place before Board Declaration of solvency and Valuation report for its approval.

• If shares to be bought back are less than 10%

Yes: Then pass the resolution of buyback of the shares in same Board Meeting and File Form MGT 14 within 30 days of BM and go to step 3.

No: Then pass resolution to call an AGM/EGM for the purpose of passing special resolution for buy back of the shares.

Note: We can convene One EGM for Alteration of Capital and Authority to Buy Back Shares.

2. Convened AGM / EGM:
3. Company should convene the general meeting for passing special resolution Notice of the meeting should contain Explanatory Statement, which gives the details as required under Sections 68 of the Companies Act, 2013. In the meeting members should pass special resolutions for sanctioning the buyback of the shares within a year of the passing of the special resolution.
4. File Form MGT -14 within 30 days of AGM / EGM.

3. Draft Letter of Offer:

• Prepare letter of offer as on date of AGM/EGM/BM.
• Before the Buy Back of shares the Company shall file with ROC a letter of offer in Form No. SH 8.
• Letter of offer shall be dated and signed on behalf of the Board of Directors of the Company by not less than 2 directors of the Company one of whom shall be the Managing Director, where there is one.
• Dispatch a letter of offer to the security holders only after 21 days from submission of the draft letter of offer to Registrar of Companies and it should be reached at the security holders before the issue open.

4. Filing Declaration of Solvency:

The company shall file with the Registrar, along with the letter of offer a declaration of solvency in Form No. SH.9 which need to be signed by at least two directors of the company, one of whom shall be the managing director, if any, and verified by an affidavit as specified in the said Form.

5. Report from the Auditors:

The company to obtain a certificate from the auditors. A report addressed to the Board of Directors by the Company’s auditors stating that  they have inquired into the company’s state of affairs; the amount of the permissible capital payment for the securities in question is in their view properly determined;  that the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document; and the Board of directors have formed the opinion as specified above on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date. 

6. Offer Period:

The offer for buy-back shall remain open for a period of not less than fifteen days and not exceeding thirty days from the date of dispatch of the letter of offer.

(If so consented by the members, it can be open for less than 15 days)

7. Bank Account :

The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the shares tendered for buy-back in terms of these rules.

8. Verification of Offer received:

The company shall complete the verifications of the offers received within 15 days from the date of closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within 21 days from the date of closure of the offer.

9. Buy Back on proportional basis:

In case the number of shares or other specified securities offered by the shareholders or security holders is more than the total number of shares or securities to be bought back by the company, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.

10. Payments / return of Share Certificate:

The company shall within seven days of the time specified in point no. 9 above –

(a) Make payment of consideration in cash to those shareholders or security holders whose securities have been accepted; or

(b) Return the share certificates to the shareholders or security holders whose securities have not been accepted at all or the balance of securities in case of part acceptance.

(c) Where buyback is effected by free reserves, sum equivalent to the Nominal Value of the shares bought back shall be transferred to Capital Redemption Reserve (CRR) & such transfer to be disclosed in Balance Sheet.

11. Certificate for Extinguishments Share Certificate:

The company should within 7 days from the Completion of Buy – Back extinguishes all share certificate related to shares which are bought–back. The Company should get certificate in Form No. SH. 15 signed by two directors of the company including the Managing Director if any and verified by Practicing Company Secretaries certifying that the Buy Back of Securities has been made in compliance with the provisions of the Act and the rules made there.

12. Return of Buy Back:

The company, after the completion of the buy-back under these rules, shall file with the Registrar, a return in the Form No. SH.11, annex Form No. SH 15 to the said return.

13. Register of Shares / Securities Bought back:

• The company shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
• The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.
• The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose.

14. Company’s Obligation:

        The company shall ensure that—

• the letter of offer shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accept the responsibility for the information contained in such document;
• the company shall not issue any new shares including by way of bonus shares within 6 months from the date of passing of special resolution / Board Resolution authorizing the buy-back under these rules, except those arising out of any outstanding convertible instruments;
• the company shall confirm in its offer the opening of a separate bank account adequately funded for this purpose and to pay the consideration only by way of cash;
• the company shall not withdraw the offer once it has announced the offer to the shareholders;
• the company shall not utilize any money borrowed from banks or financial institutions for the purpose of buying back its shares; and
• the company shall not utilize the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities for the buy-back

LISTED COMPANY

There are three options available as mentioned below to listed company to Buy Back its own Share.

1. From Existing Shareholders on proportionate basis through tender offer.
2. From Open Market through:
3. i) Book Building Process
4. ii) Stock Exchange
5. From odd lot traders

Provided that no offer of buy-back for fifteen per cent or more of the paid up capital

and free reserves of the company shall be made from the open market.

.

BUY – BACK OF SHARES FROM THROUGH TENDER OFFER\ ODD LOT BUY - BACK FROM EXISTING SHAREHOLDERS OF THE COMPANY.

A company may buy-back its shares or other specified securities from its existing security-holders on a proportionate basis in accordance of the following provisions.

Provided that fifteen percent of the number of securities which the company proposes to buy back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders

1. Convene and hold a Board Meeting
2. Convene and hold a Board Meeting after giving notice to all the directorsto discuss besides others the following matters

• To pass a resolution for buy-back of shares and also decide the price at which the company offers to the shareholders. (Section 68 of the Companies Act, 2013)
• To appoint a Compliance officer for ensuring compliance of the provisions of the Act, the Regulations, listing Agreement and any other applicable laws relating to Buy-back of securities and to redress the grievances of the investors
• To Appoint Merchant Banker who will take care of the whole proceeding
• To decide the location about the investor service center, it is desirable that such centers are opened in all such cities where the security holders holding 10% or more of the voting rights reside.
• To approve the notice & Explanatory Statement of EGM to pass special resolution for Buy Back of shares to be sent to the shareholders (If Buy Back Exceed 10 % Equity Shares upto 25 % Equity Shares)

Explanatory Statement should include

• Maximum price at which the buy-back of Shares  shall be made and whether the Board of Directors of the company are being authorised at the general meeting to determine subsequently the specific price at which the buy-back may be made at the appropriate time.
• if the promoter intends to offer their shares

1. the quantum of shares proposed to be tendered
2. the details of their transactions and their holdings for the last six months prior to the passing of the special resolution for buy-back including information of number of shares acquired, the price and the date of acquisition

• To fix the responsibility of the entire postal ballot process to the Company Secretary and any functional director of the Company
• To approve the postal ballot form along with the calendar of event.
• To appoint a scrutinizer, not being an employee, who is in the opinion of the Board of directors, can conduct the postal ballot voting process in a fair and transparent manner

1. Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting.

• Inform the said Stock Exchange within 30 minutes of the board Meeting, of the outcome of the meeting in electronic form. .

1. File Board resolution inForm MGT 14 with the Registrar of Companies within 30 days of the Board resolution.

Whether Buy Back Exceed 10%:      Yes --- go to Step 2

                                                               No--- go to Step 4

Note: We can convene One EGM for Alteration of Capital and Authority to Buy Back Shares.

2. Convene and hold a EGM
3. Hold and convene the General Meeting and pass the Special resolution for Buy-Back of shares File a certified true copy of thespecial resolution in MGT 14 with the concerned Registrar of Companies within 30 days of the date of passing of the resolution
4. Forward to the Stock Exchange promptly three copies of the notice and a copy of the proceedings of the General Meeting.
5. Postal Ballot

As per provision of Section 110 of the Companies Act, 2013 and rules applicable for the same resolution for Buy Back of shares needs to be passed through Postal Ballot.

1. Notice of postal ballot should contain the draft resolution along with its explanation, requesting the shareholder to send their assent or dissent within 30 days of postage of notice.
2. Notice shall contain a pre-paid envelope, for the shareholders to give their reply.

• Notice should be send by either Registered Post or speed post, or through electronic means like registered e-mail id or through courier service .

1. File copy of postal ballot notice to the SEBI within 2 days from date of Notice.
2. Advertisement in one English and vernacular language newspaper.
3. Scrutinizer shall submit his report as soon as possible, after the last date of receipt of postal ballots but not later than Seven Days thereof.

• The Scrutinizer shall maintain a register to record the consent, along with all other details.
• Ballot papers to be kept in safe custody of Scrutinizer, till the Chairman, considers, approves and signs the minutes of the meeting.

1. The results shall be declared by placing it, along with the scrutinizer’s report, on wet site of the Company.
2. Forward to the Stock Exchange promptly three copies of the notice of postal ballot.
3. Report from the Auditors:

The company to obtain a certificate from the auditors. A report addressed to the Board of Directors by the Company’s auditors stating that they have inquired into the company’s state of affairs; the amount of the permissible capital payment for the securities in question is in their view properly determined;  that the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document; and the Board of directors have formed the opinion as specified above on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date. 

5. Public Announcement
6. After it has been authorised to buy-back by passing resolution through postal Ballot, make a Public announcement at least 2 days before the commencement of buy-back at least one English, one Hindi and Regional language Newspaper.
7. Such public announcement shall contain the disclosures regarding detail of the Stock-Brokers and Stock Exchange(s) through which the buy-back of securities will be made.
8. A copy of the Public announcement shall be filed with SEBI along with fees specified inSchedule IV to the Regulation.

7. Draft Letter of Offer:
8. A drat letter of offer, along with fees prescribed inScheduleIV  to the Regulations, shall be filed with the SEBI through a merchant banker, within 5 days of the Public Announcement
9. The draft letter of offer shall include the particulars specified in Schedule III to the Regulations.

• . 

8. Declaration of Solvency:

A declaration of solvency in Form No. SH.9 shall be filed with SEBI along with the draft letter of offer before dispatch of Letter of offer. It is also to be filed with Registrar of Companies simultaneously.

9. Offer Period:

Decide the date of opening of the offer, it should not be earlier than 5days from the date of dispatch of letter of offer.. The offer should be opened for a period of 10 working days.

10. Escrow Account:

Open an Escrow account with a Scheduled Commercial Bank on or before the opening of the offer and deposit therein a specified amount as and by way of security. It is 25% of the consideration payable in case the consideration does not exceed Rs. 100 crores and in case the consideration is more than Rs. 100 crores, it is 25% of Rs. 100 crores and 10% of the balance of the consideration payable.

11. In case the shares tendered in dematerialized mode, the company require opening a Special Depository Account through the Registrar to the Offer.
12. Open a Special Bank Account with the Banker to the Issue. This account should be opened immediately after the date of closure of the offer and deposit the whole consideration including lying in the escrow account.
13. Escrow account shall consist of:
14. Cash Deposits
15. bank guarantee in favour of the merchant banker
16. deposit of acceptable securities with appropriate margin, with the merchant banker
17. Combination of any of the above.

14. Verification of Offer received:

The company shall complete the verifications of the offers received within 7 days from the date of closure of the offer.

15. Payment:

The payment should be made within 7 days from the date of completion of verification of offer.

16. Certificate for Extinguishments Share Certificate:

The company should within 15 days from date of acceptance of the shares or other securities extinguishes all share certificate related to shares which are buy–back in presence of the Merchant Banker and Statutory Auditor or within 7 days of the last date of completion of buy back. The Company should get certificate in Form No. SH 15 verified by Registrar to the issue/ Merchant Banker and Statutory Auditors Practicing Company Secretaries of the Company and two directors of the company including the Managing Director if any certifying that the Buy Back of Securities has been made in compliance with the provisions of the Act and the rules made there.

Furnish a certificate to SEBI and the Stock Exchange(s) within 7 days of extinguishments and destruction of the certificates.

17. Return of Buy Back :

The company, after the completion of the buy-back under these rules, shall file with the Registrar, a return in the Form No. SH.11.

18. Register of Shares / Securities Bought back:

• The company shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
• The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.
• The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose.

Odd-lot Buy-back:

The provisions pertaining to buy-back through tender offer as specified in this

Chapter shall be applicable mutatis mutandis to odd-lot [shares or other specified

securities].

BUY – BACK OF SHARES THROUGH STOCK EXCHANGE FROM EXISITNG SHAREHOLDER.

1. Convene and hold a Board Meeting
2. Convene and hold a Board Meeting after giving notice to all the directorsto discuss besides others the following matters

• To pass a resolution for buy-back of shares and also decide the price at which the company offers shares to the shareholders.( Section 68 of the Companies Act, 2013)
• To appoint a Compliance officer for ensuring compliance of the provisions of the Act, the Regulations, listing Agreement and any other applicable laws relating to Buy-back of securities and to redress the grievances of the investors
• To Appoint Merchant Banker who will take care of the whole proceeding
• .
• To approve the notice of EGM to pass special resolution for Buy Back of shares to be sent to the shareholders (If Buy Back Exceed 10 % Equity Shares upto 25 % Equity Shares)
• To fix the responsibility of the entire postal ballot process to the Company Secretary and any functional director of the Company
• To approve the postal ballot form along with the calendar of event.
• To appoint a scrutinizer, not being an employee, who is in the opinion of the Board of directors, can conduct the postal ballot voting process in a fair and transparent manner.

1. Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting.

• Inform the said Stock Exchange within 30 minutes of the board Meeting, of the outcome of the meeting in electronic form.

1. File Board resolution along with the Calendar of event inForm MGT 14 with the Registrar of Companies within 30 days of the Board resolution.

Whether Buy Back Exceed 10%:      Yes --- go to Step 2

                                                                               No--- go to Step 4

Note: We can convened One EGM for Alteration of Capital and Authority to Buy Back Shares.

2. Convene and hold a EGM
3. Hold and convene the General Meeting and pass the Special resolution for Buy-Back of shares
4. The resolution should be approved by ¾ majority i.e the votes cast in favour is three times   or more than the votes cast against. 

• File a certified true copy of thespecial resolution inMGT 14 with the concerned Registrar of Companies within 30 days of the date of passing of the resolution and also file a copy of the same to the SEBI and Stock Exchange(s), where the securities of the company are listed.

3. Postal Ballot

As per provision of Section 110 of the Companies Act, 2013 and rules applicable for the same resolution for Buy Back of shares needs to be passed through Postal Ballot.

1. Notice of postal ballot should contain the draft resolution along with its explanation, requesting the shareholder to send their assent or dissent within 30 days of postage of notice.
2. Notice shall contain a pre-paid envelope, for the shareholders to give their reply.

• Notice should be send by either Registered Post or speed post, or through electronic means like registered e-mail id or through courier service. .

1. File copy of postal ballot notice to the SEBI within 2 days from date of Notice.
2. Advertisement in one English, one Hindi and vernacular language newspaper.
3. Scrutinizer shall submit his report as soon as possible, after the last date of receipt of postal ballots but not later than Seven Days thereof.

• The Scrutinizer shall maintain a register to record the consent, along with all other details.
• Ballot papers to be kept in safe custody of Scrutinizer, till the Chairman, considers, approves and signs the minutes of the meeting.

1. The results shall be declared by placing it, along with the scrutinizer’s report, on web site of the Company.
2. Forward to the Stock Exchange promptly three copies of the notice of postal ballot.
3. Report from the Auditors:

The company to obtain a certificate from the auditors. A report addressed to the Board of Directors by the Company’s auditors stating that  they have inquired into the company’s state of affairs; the amount of the permissible capital payment for the securities in question is in their view properly determined;  that the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document; and the Board of directors have formed the opinion as specified above on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date

5. Public Announcement
6. After it has been authorized to buy-back by passing resolution through postal Ballot, make a Public announcement at least 7 days from the date of passing of resolution for buy-back at least one English, Hindi and Regional language Newspaper.
7. Such public announcement shall contain the disclosures regarding detail of the Stock-Brokers and Stock Exchange(s) through which the buy-back of securities will be made.
8. A copy of the Public announcement shall be filed with SEBI along with fees specified inSchedule IV to the Regulation.

7. Draft Letter of Offer:

1. A drat letter of offer along with fees prescribed inSchedule IV to the Regulations, shall be filed with the SEBI through a merchant banker, within 5 days of the Public Announcement
2. The draft letter of offer shall include the particulars specified in Schedule III to the Regulations.

8. Declaration of Solvency:

A declaration of solvency in Form No. SH.9 shall be filed with SEBI along with the draft letter of offer before dispatch of Letter of offer. It is also to be filed with Registrar of Companies simultaneously.

9. Offer Period:

Decide the date of opening of the offer, it should not be later than 7 days from the date of Public announcement and shall close within six months from the date of opening of offer..

10. Information to stock Exchanges:
11. Give information to the stock –exchanges on daily basis regarding the securities purchased for buy-back and such information shall be published in a national daily.
12. The company shall buy-back its securities only through the order matching mechanism, except ‘all or none’ order matching system

• The securities purchased by the company may not be necessary to be purchased at a uniform price.

1. The company shall pay the consideration to the stock –brokers on every settlement date.

11. Verification of Offer received:

The company shall complete the verifications of the offers received within 15 days from the date of closure of the offer.

12. Buy-back of physical shares or other specified securities:

A company shall buy-back its shares or other specified securities in physical form through open market method as provided hereunder

1. A separate window shall be created by the stock exchange, which shall remain open during the buy-back period, for buy-back of in physical form.
2. the company shall buy-back shares or other specified securities from eligible shareholders holding physical shares through the separate window

13. Certificate for Extinguishments Share Certificate:

The company should during the month in the presence of a Registrar to issue or the Merchant Banker and the Statutory Auditor, on or before the fifteenth day of the succeeding month  or within 7 days from the Completion of Buy – Back extinguishes all share certificate related to shares which are buy–back. The Company should get certificate in Form No. SH 15 verified by Registrar to the issue/ Merchant Banker and Statutory Auditors Practicing Company Secretaries of the Company and two directors of the company including the Managing Director if any certifying that the Buy Back of Securities has been made in compliance with the provisions of the Act and the rules made there.

Furnish a certificate to SEBI and the Stock Exchange(s) within 7 days of extinguishments and destruction of the certificates.

14. Return of Buy Back :

The company, after the completion of the buy-back under these rules, shall file with the Registrar, a return in the Form No. SH.11.

15. Register of Shares / Securities Bought back:

• The company shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
• The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.
• The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose.

BUY – BACK OF SHARES FROM THROUGH BOOK BUILDING FROM EXISTING SHAREHOLDERS OF THE COMPANY

1. Convene and hold a Board Meeting
2. Convene and hold a Board Meeting after giving notice to all the directorsto discuss besides others the following matters

• To pass a resolution for buy-back of shares and also decide the price at which the company offers to the shareholders. (Section 68 of the Companies Act, 2013)
• To appoint a Compliance officer for ensuring compliance of the provisions of the Act, the Regulations, listing Agreement and any other applicable laws relating to Buy-back of securities and to redress the grievances of the investors.
• To Appoint Merchant Banker who will take care of the whole proceeding
• To decide the location about the investor service center, it is desirable that such centers are opened in all such cities where the security holders holding 10% or more of the voting rights reside.
• .
• To approve the notice of EGM to pass special resolution for Buy Back of shares to be sent to the shareholders (If Buy Back Exceed 10 % Equity Shares upto 25 % Equity Shares)
• To fix the responsibility of the entire postal ballot process to the Company Secretary and any functional director of the Company
• To approve the postal ballot form along with the calendar of event.
• To appoint a scrutinizer, not being an employee, who is in the opinion of the Board of directors, can conduct the postal ballot voting process in a fair and transparent manner

1. Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting.

• Inform the said Stock Exchange within 30 minutes of the board Meeting, of the outcome of the meeting in electronic form.

1. File Board resolution along with the Calendar of event inForm MGT 14 with the Registrar of Companies within 30 days of the Board resolution.

Whether Buy Back Exceed 10%:      Yes --- go to Step 2

                                                               No--- go to Step 4

Note: We can convene One EGM for Alteration of Capital and Authority to Buy Back Shares.

2. Convene and hold a EGM
3. Hold and convene the General Meeting and pass the Special resolution for Buy-Back of shares
4. The resolution should be approved by ¾ majority i.e the votes cast in favour is three times   or more than the votes cast against. 

• File a certified true copy of thespecial resolution inMGT 14 with the concerned Registrar of Companies within 30 days of the date of passing of the resolution

1. Forward to the Stock Exchange promptly three copies of the notice and a copy of the proceedings of the General Meeting.
2. Postal Ballot

As per provision of Section 110 of the Companies Act, 2013 and rules applicable for the same resolution for Buy Back of shares needs to be passed through Postal Ballot.

1. Notice of postal ballot should contain the draft resolution along with its explanation, requesting the shareholder to send their assent or dissent within 30 days of postage of notice.
2. Notice shall contain a pre-paid envelope, for the shareholders to give their reply.

• Notice should be send by either Registered Post or speed post, or through electronic means like registered e-mail id or through courier service. .

1. File copy of postal ballot notice to the SEBI within 2 days from date of Notice.
2. Advertisement in one English, one Hindi and vernacular language newspaper.
3. Scrutinizer shall submit his report as soon as possible, after the last date of receipt of postal ballots but not later than Seven Days thereof.

• The Scrutinizer shall maintain a register to record the consent, along with all other details.
• Ballot papers to be kept in safe custody of Scrutinizer, till the Chairman, considers, approves and signs the minutes of the meeting.

1. The results shall be declared by placing it, along with the scrutinizer’s report, on wet site of the Company.
2. Forward to the Stock Exchange promptly three copies of the notice of postal ballot.
3. Public Announcement
4. After it has been authorised to buy-back by passing resolution through postal Ballot, make a Public announcement at least 7 days before the commencement of buy-back at least one English, Hindi and Regional language Newspaper.
5. Such public announcement shall contain the disclosures regarding detail of the Stock-Brokers and Stock Exchange(s) through which the buy-back of securities will be made.
6. A copy of the Public announcement shall be filed with SEBI within 2 days of such announcement along with fees specified inSchedule IV to the Regulation.

6. Draft Letter of Offer:

1. A drat letter of offer, along with fees prescribed inSchedule IV to the Regulations, shall be filed with the SEBI through a merchant banker, within 7 days of the Public Announcement
2. The draft letter of offer shall include the particulars specified in Schedule IIIto the Regulations.

7. Report from the Auditors:

The company to obtain a certificate from the auditors. A report addressed to the Board of Directors by the Company’s auditors stating that  they have inquired into the company’s state of affairs; the amount of the permissible capital payment for the securities in question is in their view properly determined;  that the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document; and the Board of directors have formed the opinion as specified above on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date.

8. Declaration of Solvency:

A declaration of solvency in Form No. SH.9 shall be filed with SEBI along with the draft letter of offer before dispatch of Letter of offer. It is also to be filed with Registrar of Companies simultaneously.

9. Offer Period:

. The offer should be opened for a period not less than 15 days and not more than 30 days from the date of dispatch of letter of offer to the security holders.

10. Escrow Account:

Open an Escrow account with a Scheduled Commercial Bank on or before the opening of the offer and deposit therein a specified amount as and by way of security. It is 25% of the consideration payable in case the consideration does not exceed Rs. 100 crores and in case the consideration is more than Rs. 100 crores, it is 25% of Rs. 100 crores and 10% of the balance of the consideration payable.

11. The Book building process shall be made through an electronically linked transparent facility. The number of bidding centers shall not be less than 30 and there shall be at least on electronically linked computer terminal at all the bidding centers.

12. In case the shares tendered in dematerialized mode, the company require opening a Special Depository Account through the Registrar to the Offer.

13. Open a Special Bank Account with the Banker to the Issue. This account should be opened immediately after the date of closure of the offer and deposit the whole consideration including lying in the escrow account.

14. The merchant banker and the company shall determine the buy-back price based on the acceptance received. The final buy-back price, which shall be the highest price accepted shall be paid to all holders whose shares or other specified securities have been accepted for buy-back.
15. In case the securities tendered by the security holders at the price at which the final buy-back price has been arrived at exceeds the total number of securities offered to be bought back by the company, the bids shall be acceptable by the company in consultation with the manager to the offer as per the pre-determined formula.

16. Verification of Offer received:

The company shall complete the verifications of the offers received within 15 days from the date of closure of the offer.

17. Payment:

The payment should be made within 7 days from the date of completion of verification of offer.

18. Certificate for Extinguishments Share Certificate:

The company should within fifteen days of the date of acceptance of the shares or other specified securities or within 7 days from the Completion of Buy – Back extinguishes all share certificate related to shares which are buy–back in the presence of a Registrar to issue or the Merchant Banker and the Statutory Auditor . The Company should get certificate in Form No. SH. 15 verified by Registrar to the issue/ Merchant Banker and Statutory Auditors Practicing Company Secretaries of the Company and two directors of the company including the Managing Director if any certifying that the Buy Back of Securities has been made in compliance with the provisions of the Act and the rules made there.

Furnish a certificate to SEBI and the Stock Exchange(s) within 7 days of extinguishments and destruction of the certificates.

19. Return of Buy Back :

The company, after the completion of the buy-back under these rules, shall file with the Registrar, a return in the Form No. SH.11.

20. Register of Shares / Securities Bought back:

• The company shall maintain a register of shares or other securities which have been bought-back in Form No. SH.10.
• The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.
• The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose.

The notice of the meeting at which Special Resolution is proposed to be passed shall be accompanied by an explanatory statement stating all the details regarding buy back of shares viz:

1. The date of Board meeting at which the proposal for buyback was approved by the Board of Director of the Company;
2. The Objective of the Buy- Back;
3. The Class of security intended to be purchased under the buy back;
4. The number of securities that the company proposed to buy-back;
5. The Method to be adopted for the buy-back;
6. The price at which the buy- back of shares or other Securities shall be made
7. The basis of arriving at the buy-back price;
8. The maximum amount to be paid for the buy-back and the sources of funds from which the buy-back would be financed;
9. The time limit for the completion of buy-back;
10. The aggregate of shareholding of promoter and the director as on the date of the notice convening the General Meeting;
11. Aggregate number of equity shares purchased or sold by persons including promoter and director during a period of 12 Months preceding the date of Board Meeting at which buy back was approved form the date of the notice convening the General Meeting;
12. The maximum and minimum price at which purchase and sales referred to above made along with the relevant date;
13. If promoters etc. intended to tender their shares for buy-back
    1. the quantum of shares proposed to be tendered
    2. the details of their transaction and their holding for the last twelve months prior to the date of the Board Meeting at which the buy – back was approved including information of number of shares acquired, the price and the date of acquisition.

1. A confirmation that there are no default subsisting in repayment of deposits, interest payment thereon, redemption of debenture or payment of interest thereon or redemption of preference shares or payment of Dividend due to any shareholder or repayment of term loans or interest payable thereon to any financial institution or Banking Company;
2. A confirmation that the Board of Directors have made full enquiry into the affairs and prospects of the Company and that they have formed the opinion
   1. that immediately following the date on which the general meeting is convened there shall be no grounds on which the company could be found unable to pay its debts;
   2. as regards its prospects for the year immediately following that date, that having regard to their intentions with respect to the management of the company’s business during that year and to the amount and character of the financial resources which will in their view be available to the company during that year, the company shall be able to meet its liabilities as and when they fall due and shall not be rendered insolvent within a period of one year from that date; and
   3. the directors have taken into account the liabilities (including prospective and contingent liabilities), as if the company were being wound up under the provisions of the Companies Act, 2013 .
3. A report addressed to the Board of Directors by the Company’s auditors stating that
   1. they have inquired into the company’s state of affairs;
   2. the amount of the permissible capital payment for the securities in question is in their view properly determined;
   3. that the audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document; and
   4. the Board of directors have formed the opinion as specified above on reasonable grounds and that the company, having regard to its state of affairs, shall not be rendered insolvent within a period of one year from that date.

The Letter of Offer shall inter-alia include:

1. Details of the offer including the total number and percentage of the total paid up capital and free reserves proposed to be bought back and price;
2. Authority for the offer of buy-back;
3. The proposed time table from opening of the offer till the extinguishment of the certificates;
4. A full and complete disclosure of all material facts including the contents of the explanatory statement annexed to the notice for the general meeting at which the special resolution approving the buyback was passed;
5. The necessity for the buy back;
6. The process to be adopted for the buy back;
7. The minimum and the maximum number of securities that the company proposes to buy-back, sources of funds from which the buy-back would be made and the cost of financing the buy-back;
8. Brief information about the company;
9. Audited Financial information for the last 3 years and the company and its Directors shall ensure that the particulars (audited statement and un-audited statement) contained therein shall not be more than 6 months old from the date of the offer document together with financial ratios as may be specified by the Board; Procedural Checklist for Buying Back shares of an unlisted company;
10. Present capital structure (including the number of fully paid and partly paid securities) and shareholding pattern;
11. The capital structure including details of outstanding convertible instruments, if any, post buy-back;
12. The aggregate shareholding of the promoter group and of the directors of the promoters, where the promoter is a company and of persons who are in control of the company;
13. The aggregate number of equity shares purchased or sold by persons mentioned in clause (12) above during a period of twelve months preceding the date of the public announcement and from the date of public announcement to the date of the letter of offer; the maximum and minimum price at which purchases and sales referred to above were made alongwith the relevant date;
14. Management discussion and analysis on the likely impact of buy back on the company’s earnings, public holdings, holdings of Non Resident Indians/Foreign Institutional Investors, etc., promoters holdings and any change in management structure;
15. The details of statutory approvals obtained;
16. A declaration to be signed
17. by at least two whole time directors that there are no defaults subsisting in repayment of deposit. Redemption of debentures or preference shares or repayment of a term loans to any financial institutions or banks;
18. by at least two whole time directors, one of whom shall be the managing director stating that the Board of Directors has made a full enquiry into the affairs and prospectus of the company and that they have formed the opinion –
19. as regards its prospects for the year immediately following the date of the letter of offer that, having regard to their intentions with respect to the management of the company’s business during the year and to the amount and character of the financial resources which will in their view be available to the company during that year, the company will be able to meet its liabilities and will not be rendered insolvent within a period of one year from the date;
20. in forming their opinion for the above purposes, the directors shall take into account the liabilities as if the company were being wound up under the Procedural Checklist for Buying Back shares of an unlisted company provisions of the Companies Act, 1956 (including prospective and contingent liabilities)
21. The letter of offer must be accompanied by an Auditor’s report obtained by the directors

SCHEDULE IV 
[REGULATIONS 8(5), 15(e), 17(e)] 
FEES

[103] [104][105](1) Every merchant banker shall while submitting the offer document or a copy of the public announcement to the Board, pay fees as set out below:-

:

(a) The fees shall be paid along with the draft of the offer document or public announcement submitted to the Board;

(b) The fees shall be payable by by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode allowed by RBI or a draft in favour of Securities & Exchange Board of India at Mumbai.

Offer period

Offer Period means period between date of opening of offer and closing of offer as mentioned in Public Announcement or in Letter of offer.

TRANSFER OF UNDERTAKING (Including Slum Sale):

UNLISTED PUBLIC COMPANY / PRIVATE COMPANY

1. Check Memorandum of Association of Transferor Company whether it contain the power to sell a business undertaking and in case of Transferee contain object(s) for carrying on such business.

Yes – Then go to Step 2

No – Follow procedure as laid down below (Put Link for the same)

1. Call board Meeting to discuss following business: –
2. To discuss about alteration of Memorandum of Association of the Company.

      (Annexure I - Resolution)

1. To call for an Extra-Ordinary General Meeting to alter Memorandum of Association of the Company.
2. Convene Extra-Ordinary General Meeting -
3. Passed resolution for alteration of Memorandum of Association of the Company.(Annexure II)
4. File Form MGT -14 with ROC within 30 days of EGM.
5. Print New set of MOA & AOA after incorporating changes in MOA.

2. Convene board Meeting to discuss following business:

1. Discuss proposal for Transfer of Undertaking (Including Slum Sale).
2. Pass resolution to call an AGM/EGM for the purpose of passing special resolution for Transfer of Undertaking (Including Slum Sale).

3. Convened AGM / EGM:

1. Company should convene the general meeting for passing special resolution (Annexure III). In the meeting members should pass special resolutions for sanctioning the Transfer of Undertaking (Including Slum Sale).

1. File Form MGT -14 within 30 days of AGM / EGM.

4. Execute the Slump Sale Agreement and give possession of property to buyer with possession letter

Listed Company.

1. Check whether Memorandum of Association of the Company contains the power to sell a business undertaking and in case of Transferee contain object(s) for carrying on such business. (Put Link)

Yes – Then go to Step 2

No – Follow procedure as laid down below

1. Convene Board Meeting after giving notice to all the directorsto discuss the following matters.
   • To consider and approve the proposal of altering the Memorandum of Association. (Annexure I)
   • To fix the date, time and place for convening the General Meeting of shareholders.
   • Issue and dispatch notices at least 21 clear days before the date of the General Meeting
2. Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting.

• Inform the said Stock Exchange within 15 minutes of the board Meeting, of the outcome of the meeting by letter or fax.

1. Hold and convene the General Meeting and pass theSpecial Resolution.(Annexure II)
2. File the Special Resolution with Explanatory Statement in MGT 14 with the concerned ROC within thirty days of EGM.
3. File with the Stock Exchange six copies of the amendments made in the Memorandum of Association as soon as they are adopted by the Company in the General Meeting. One of the copies must be certified copy.

• Forward to the Stock Exchange promptly three copies of the notice and a copy of the proceedings of the General Meeting.
• Note the alteration in all the copies of Memorandum of Association available with the company.

2. Convene and hold a Board Meeting
3. Convene and hold a Board Meeting after giving notice to all the directorsto discuss besides others the following matters

• To pass a resolution for sale of
• To decide about day, place and time to call Extra Ordinary General Meeting (EGM) to pass Special Resolution and to issue notice of EGM.
• To approve Postal Ballot notice, Form along with the calendar of event.
• To fix the responsibility of the entire postal ballot process to the Company Secretary and any functional director of the Company
• To appoint a scrutinizer, not being an employee, who is in the opinion of the Board of directors, can conduct the postal ballot voting process in a fair and transparent manner.

1. Inform the Stock Exchange with which shares of the company are listed about the date of this meeting prior to the board meeting.

• Inform the said Stock Exchange within 15 minutes of the board Meeting, of the outcome of the meeting by letter or fax.

1. File Board resolution along with the Calendar of event inForm MGT 14 with the Registrar of Companies within 30 days of the Board resolution.
2. Postal Ballot

As per provision of Section 110 of the Companies Act, 2013 and rules applicable for the same resolution for Transfer of Undertaking (Including Slum Sale) shall be passed through Postal Ballot.

Following is procedure for Postal Ballot.

1. Notice to Shareholders:

Where a company is required or decides to pass any resolution by way of postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons there for and requesting them to send their assent or dissent in writing on a postal ballot because postal ballot means voting by post or through electronic means within a period of 30 days from the date of dispatch of the notice.

1. Mode of dispatch:

The notice shall be sent either:

• by Registered Post or speed post, or
• through electronic means like registered e-mail id or
• Through courier service for facilitating the communication of the assent or dissent of the shareholder to the resolution within the said period of thirty days.

• Publish advertisement:

An advertisement shall be published at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district, about having dispatched the ballot papers and specifying therein.

Details of Advertisement:

• a statement to the effect that the business is to be transacted by postal ballot which includes voting by electronic means;
• the date of completion of dispatch of notices;
• the date of commencement of voting;
• the date of end of voting;
• the statement that any postal ballot received from the member beyond the said date will not be valid and voting whether by post or by electronic means shall not be allowed beyond the said date;
• a statement to the effect that members, who have not received postal ballot forms may apply to the company and obtain a duplicate thereof; and
• Contact details of the person responsible to address the grievances connected with the voting by postal ballot including voting by electronic means.

1. Place notice on website:

The notice of the postal ballot shall also be placed on the website of the company forthwith after the notice is sent to the members and such notice shall remain on such website till the last date for receipt of the postal ballots from the members.

1. Appoint Scrutinizer:

The Board of directors shall appoint one scrutinizer, who is not in employment of the company and who, in the opinion of the Board can conduct the postal ballot voting process in a fair and transparent manner.

1. Obligation of Scrutinizer:

• The scrutinizer shall be willing to be appointed and be available for the purpose of ascertaining the requisite majority.
• Postal ballot received back from the shareholders shall be kept in the safe custody of the scrutinizer and after the receipt of assent or dissent of the shareholder in writing on a postal ballot, no person shall deface or destroy the ballot paper or declare the identity of the shareholder
• The scrutinizer shall submit his report as soon as possible after the last date of receipt of postal ballots but not later than seven days thereof
• The scrutinizer shall maintain a register either manually or electronically to record their assent or dissent received, mentioning the particulars of name, address, folio number or client ID of the shareholder, number of shares held by them, nominal value of such shares, whether the shares have differential voting rights, if any, details of postal ballots which are received in defaced or mutilated form and postal ballot forms which are invalid.
• The postal ballot and all other papers relating to postal ballot including voting by electronic means, shall be under the safe custody of the scrutinizer till the chairman considers, approves and signs the minutes and thereafter, the scrutinizer shall return the ballot papers and other related papers or register to the company who shall preserve such ballot papers and other related papers or register safely.
• The assent or dissent received after thirty days from the date of issue of notice shall be treated as if reply from the member has not been received.
• The results shall be declared by placing it, along with the scrutinizer’s report, on the website of the company.
• The resolution shall be deemed to be passed on the date of at a meeting convened in that behalf.

4. Convened AGM / EGM:
5. Company should convene the general meeting for passing special resolution (As Annexure III). In the meeting members should pass special resolutions for sale of ___. Scrutinizer will submit his report on Postal Ballot. Based on provision specified in the Act, chairman can declared this resolution is passed unanimously:
6. File Form MGT -14 within 30 days of AGM / EGM.

• Inform Stock Exchanges in this behalf.

5. Execute the Slump Sale Agreement and give possession of property to buyer with possession letter.

Annexure I

“RESOLVED THAT pursuant to the provisions of Section 13 and other applicable provisions, if any, of Companies Act, 2013, (including any statutory modifications or re-enactment thereof, for the time being in force), and the rules framed there under, consent of the Board of Directors of the Company be and is hereby accorded, subject to the approval of the Registrar of Companies, and subject to the approval of Shareholders in General Meeting, to append following sub clause __ after sub clause __ of clause III B  of the Memorandum of Association of Company:  

FURTHER RESOLVED THAT for the purpose of giving effect to this resolution, Mr. ___________, Director of the Company be and is hereby authorised, on behalf of the Company, to do all acts, deeds, matters and things as deem necessary, proper or desirable and to sign and execute all necessary documents, applications and returns for the purpose of giving effect to the aforesaid resolution along with filing of necessary E-form with the Registrar of Companies.”

Annexure II

“RESOLVED THAT pursuant to the provisions of Section 13 and other applicable provisions, if any, of Companies Act, 2013, (including any statutory modifications or re-enactment thereof, for the time being in force), and the rules framed there under, consent of the shareholders of the Company be and is hereby accorded, subject to the approval of the Registrar of Companies to append following sub clause __ after sub clause __ of clause III B of the Memorandum of Association of Company:  

FURTHER RESOLVED THAT for the purpose of giving effect to this resolution, Mr. _____, Director of the Company be and is hereby authorised, on behalf of the Company, to do all acts, deeds, matters and things as deem necessary, proper or desirable and to sign and execute all necessary documents, applications and returns for the purpose of giving effect to the aforesaid resolution along with filing of necessary E-form with the Registrar of Companies.”

Annexure III

“RESOLVED THAT pursuant to the provisions of Section 110 of the Companies Act, 2013, read with the Companies (Management & Administration) Rules, 2014 as amended from time to time and other applicable provisions, if any, of the Companies Act, 2013 (including any amendment thereto or re-enactment thereof for the time being in force), the Memorandum and Articles of Association of the Company and subject to other applicable statutory provisions, rules, regulations, guidelines and subject to the approvals, consents, permissions and sanctions as may be necessary from the concerned Statutory Authorities and subject to such terms and conditions as may be imposed by them, consent of the members of the Company be and is hereby accorded to the Board of Directors of the Company (hereinafter referred to as "the Board" which expression shall also include its Committee thereof constituted by the Board in this regard) to sell, transfer, assign, convey, lease and deliver or cause to be sold, assigned, transferred and delivered the whole of the ___________ business of the Company or substantial part thereof, along with its employees as well as assets and liabilities pertaining thereto, including all relevant licenses, permits, consents and approvals whatsoever, as a "going concern" to __________________, effective from such date, subject to mutual agreement on such terms and conditions as the Board may deem appropriate in the best interest of the Company".

RESOLVED FURTHER THAT the Board be and is hereby authorized to do and perform all such acts, matters, deeds and things, as may be necessary, without further referring to the members of the Company, including finalizing and varying the terms and conditions, methods and modes in respect thereof, determining the exact effective date, and finalising and executing necessary documents including schemes, agreements, deeds of assignment / conveyance and such other documents as may be necessary or expedient in its own discretion and in the best interest of the Company including the power to delegate, to give effect to this Resolution and to settle any question that may arise in this regard and incidental thereto, without being required to seek any further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto expressly by the authority of this resolution."

1. Sell off of a company

Company is required to hold a Board meeting to pass resolutions for approving the scheme of Sell off & for calling the Extra Ordinary General Meeting (EGM) of Members
At EGM, Members of the company has to pass the special resolution for approving the scheme of sell of or slump sale. Listed Companies and other Public Companies which require to constitute Audit Committee as per the provisions of the Companies Act, 2013 shall refer valuation of the Asset or Undertaking to be transferred, to the Audit Committee.

Activities Involved and Time Schedule for Sell-off

• Stock Exchange requirements to be complied with only in case of Listed Companies.

Buyback vs Reduction of Share Capital

Reduction of share capital means reduction of issued, subscribed and paid up share capital of the company. A company may want to reduce its share capital to eliminate the losses, or return surplus capital to shareholders. Generally, eliminating losses is the main reason for reduction of capital. A company can reduce its liability towards unpaid share capital.

Buy back is also a form of Reduction but does not require Tribunals approval.

A buy-back of shares is where a company acquires shares from one or more of its shareholders as per the provisions of the Companies Act, 2013 (‘Act’). Similarly, a share capital reduction is a process governed by the Act which allows funds retained in the capital of a company to be returned to its shareholders. Unlike a share buy-back, a share capital reduction will apply to all shareholders of a company.

Reasons to carryout Buy Back of shares:

1. It provides an exit to a shareholder from the company
2. The companies having large funds whether from profits or from proceeds of any sale or disposal of assets, and want to divest of the same by returning to the shareholders.
3. To adjust the proportion of the shareholdings of the shareholders wherein some want to realise or sell their shares and other want to increase their proportion of holding in the company.

Reasons to carryout Reduction of shares:

1. If the company has surplus cash it may pay or transfer the such to its shareholders.
2. A company can be prevented from paying out dividends to shareholders where the company has accumulated realised losses, even if it is trading profitably.

Taxation Aspects for Buy back and Reduction:

Thus, we conclude after considering both sections of the Act that Buyback of shares and reduction of capital are two different concepts. Accordingly, to the extent reduction of share capital is made out of accumulated profits of the company, these are ‘deemed dividend’ and in buy back of shares there cannot be any dividend income but only capital gains in the hands of the shareholder.

Over capitalization vs Under Capitalization:

A company is said to be over- capitalised if its earnings are not sufficient to justify a fair return on the amount of its share capital. It can also be said that the company is over capitalised when total of owned and borrowed funds exceeds its fixed and current assets i.e. it shows accumulated losses on assets side of the balance sheet.

If owned capital of the company is less than borrowed capital than it is said to be under capitalised.

Under capitalization may be the result of excess volume of trading and over capitalization may be due to insufficient volume of trading.

A overcapitalised company can resort to Buyback.

Violations of the Provisions:

Restrictions are imposed on companies buying back their shares under the Act in order to protect creditors. The procedure to effect a purchase of own shares must be followed strictly. If the relevant part of the Act is contravened the transaction will be void and an offence will be committed by the company and every officer in default. Any officer in default may be liable to receive a prison term of up to three years or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees or with both. It is therefore essential to ensure that the correct procedure is strictly followed.

In case of Reduction, any person found guilty of fraud is punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years, and also liable to fine, which may extend to 3 times the amount of fraud, where fraud involves amount of at least rs. 10Lacs or one percent of the turnover of the company, whichever is low.

Practically, the effect of both, reduction and buy back is a reduction in share capital of the company.

• The shares is case of buyback has to be fully paid up at the time of buy back, whereas reduction does not require the shares to be fully paid up.
• What makes a difference is that in buyback the members or the shareholders decides whether they want to accept or not the companies offer to buy back, whereas in contrast in reduction of capital, once the shareholders approve the resolution, whether they vote in favour or against or did not vote, for the resolution.

Can share premium account be utilized for reducing share capital?

Yes, the capital can be reduced by utilizing Securities Premium Account and General Reserve, if there is no dimunition of liabilities or repayment of paid up capital. No reduction of issued, subscribed or paid up capital.  

Why does Reduction require Tribunals approval?

Reduction of share capital involves affecting of rights of the Members as well as that of the creditors. It is a compromise between the members and creditors hence, the company needs to apply to the tribunal.

Notings: Is Buyback of share and Reduction of shares one and the same?

It is pertinent to note that there is a vast difference between both. In addition to difference mentioned above, in case of Buyback of shares there are limitations on quantum of Buyback, the sources of funding and conditions as specified for Buyback. In Buyback of shares consent of members in suffice, however in case of Reduction of Capital must be approved by the NCLT, Creditors and Members.